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Union Budget 20-21 is likely to cut the import duty on gold from the current 12.5 per cent with a view to push exports of jewellery despite the reduction likely affecting the current account deficit, people in the know of matters said.
India is the largest importer of gold and gold imported is used to meet the demand of the jewellery industry. Gems and jewellery exports declined about 1.5 per cent to $20.5 billion in April-November this fiscal.
The country's gold imports dipped about 3 per cent in value terms to $32.8 billion in 2018-19. But less gold import helped the CAD narrow to 0.9 per cent of gross domestic product or $6.3 billion in July-September, 2019-20 from 2.9 per cent or $19 billion in same period last year, according to the Reserve Bank of India data.
India imports 800-900 tonne of gold annually.
What will be the exact cut in import duty is difficult to say, but it is expected to be cut, but a cut is probably inevitable looking at weak exports.
Indian jewelleries are in good demand abroad, the urgency is to boost exports where we have strength, said the sources.
Gold imports in December declined sharply to 39 tonne, from 152 tonne in November. India's gold imports, which have a bearing on the current account deficit, fell about 7 per cent to $20.57 billion during April-November period of the ongoing financial year, according to the Commerce Ministry data.
As per government data, India's gold imports fell about 7 per cent to $20.57 billion during April-November period of the ongoing financial year. The commerce ministry data said Imports of the yellow metal stood at $22.16 billion in the same period of 2018-19.
Commerce Ministry in its 20-21 Budget proposals, has already urged the Finance Ministry to consider a significant reduction in the import duty on gold.
In the last Budget, the government had increased the import duty on the yellow metal to 12.5 percent. The gems and jewellery export industry has sought reduction in the import duty to 4 per cent in the budget, which is scheduled on February 1.
The current fiscal budget hiked import duty on gold to 12.5 per cent from 10 per cent making the gold dearer in the domestic market and had also increased the possibility of increasing entry of gold in the country through the illegal route.
Recently in wake of the Iran US conflict the gold prices in India had touched Rs 42,000 per 10 gram which now have settled to 40,940.
Before the hike in import duty in current fiscal gold attracted an import duty of 10 per cent and GST of 3 per cent, which means the total tax incidence is 13 per cent. Post increase in import duty the tax incidence went up to 15 per cent which lessened the demand for the buyers.